2002 Industry Outlook

Details

December 17, 2001

2002 promises to be a year of changes.

The biggest change impacting the cruise industry may be the merger between Royal Caribbean Cruises (RCC) and P&O Princess Cruises (POC) that will lead to two companies, the new RCC/POC combination and Carnival Corporation dominating the industry with 80 percent of the North American market and 65 percent of the worldwide market.

Further consolidation may also be in the cards. At the delivery of the Carnival Pride, Carnival Chairman Micky Arison said that he was open to acquisitions.

In a separate interview with Cruise Industry News, Bob Dickinson, president of Carnival Cruise Lines, said he believed there will be a shakeout with several more cruise lines closing their doors.

Consolidation is also expected in the luxury market, where smaller operators are battling it out, but it may be difficult to merge the different brands, which have vastly different corporate cultures and competing products.

Meanwhile, the industry is awaiting the upcoming Wave Period, which will set the tone for the balance of the year.

The challenges in 2002 will not only be to overcome the soft economy and people's aversion to traveling following the fall's events, but also the concentration of capacity in domestic markets. In addition is the trend towards passengers booking ever closer in, making it more difficult to forecast revenues.

The first meaningful guideline to 2002 may come later this week in Carnival fourth-quarter conference call.

Dickinson told CIN that "pricing obviously continues to be challenging," but that the company continues to monitor both pricing and consumer spending habits and will adjust rates if necessary to entice consumers to spend.

Added Colin Veitch, president of Carnival Corporation: "Our objective is to stimulate long­ term business. It is important that people start to plan ahead."

He added that while some three-day cruises may grab headlines at $199, "the other pricing in the industry was quite reasonable," he said.

"However, we are in an economic downturn and there will be some pricing pressure for some time," Veitch said, who also pointed out that cruise ships are sailing full, and that no hotels or airlines can claim that. Yet cruises are a totally discretionary product.

At Holland America Line, CEO A. Kirk Lanterman said that the company "is committed to implementing plans and promotions to get this industry moving and sailing with full ships."

In today's economic climate, the cruise lines are also focused on cutting costs "without affecting the quality of the product." Phil Kleweno, president of Princess Cruises, said that cost analysis had been an area of focus for some time. "Our ongoing mission is to find more efficient operational methods, both shoreside and onboard," he said.

At Royal Caribbean International, company President Jack Williams said that while the company had cut staff, it had made no reductions in its sales force. "We know that our sales force will be very important to build our customer base," Williams said. Added Lanterman: "We look at the market, the level of booking activity, our marketing and sales strategies, and our deployments every day."

Lanterman also said that HAL has changed 15 percent of its itineraries for 2002, affecting six ships. Veitch said that NCL has redeployed the bulk of its fleet with 90 percent of its cruises out of U.S. and Canadian homeports in 2002.

In Europe, Pier Luigi Foschi, president of Costa Crociere, expressed optimism and said he believed that ship redeployments will provide enough comfort and assurance for passengers to continue considering a cruise as safe and exciting as before.

Long term, George Poulides, chairman and CEO of Festival Cruises, reflected much of the industry's viewpoint when he said he has not changed his belief in the industry's future, adding that the strongest growth will come in Europe.

"The world has not changed," said Veitch. "It is just very different in the short term. We have to look beyond that. We will gradually return to normalcy and there is tremendous cruise potential in North America."